Backup Withholding: Frequently Asked Questions
Benjamin Franklin wrote that "in this world, nothing is certain except death and taxes". As a merchant, you probably think about this saying often when you are filing your federal income taxes every year. This may be particularly true if you have ever failed to include your Tax Payer Identification Number (TIN) or omitted an income and been subject to backup withholding by the IRS.
Backup withholding can apply to most types of payments reported on Forms 1099-K which include payment card and third-party network transactions. Withholding is also imposed on merchants who have been identified by the IRS as having a Personal/ Business Name/TIN mismatch.
According to Covington and Burlington LLP, backup withholding can apply to most kinds of payments reported on Forms 1099-K, which include payment card and third-party network transactions. Withholding is also imposed on merchants who have been identified by the IRS as having a Personal/ Business Name/TIN mismatch. A merchant may also receive a $50 penalty by the IRS for failing to provide a correct taxpayer identification.
Common Questions About Backup Withholding
Will I be notified before backup withholding starts on my account?
If you do not provide a tax identification number, you will not receive notice before backup withholding starts. If you provided a tax identification number but your tax filing name and tax identification number do not match what is on file with the IRS, the IRS may provide you with a notice before implementing backup withholding.
How is backup withholding removed?
To remove your account from backup withholding, a tax document is required. If the TIN was missing from the application, you need to provide a completed W-9 IRS form. If a merchant receives a B-Notice, the B-Notice will indicate the type of tax document required. Once acceptable tax documentation has been received by the IRS, backup withholding will be removed within 30 business days.
What is the timeframe for processing a tax document or related communications?
If the merchant is on backup withholding, the standard processing time for tax documents received is 20 business days. Send documentation once and do not send repeated emails inquiring about status as this may result in delays. Be sure to identify as the subject of your email or letter as "Backup withholding documentation."
Where can missing or mismatch TINs be viewed?
- Merchants may view TIN status within their Payanywhere Payments Hub on the IRS page.
- TIN status also appears as an alert on the Daily Snapshot (EPX only).
- Sales Partners may view their portfolio TIN statuses in the Sales Partner Portal.
- Advisors may see TIN status information in the Compliance container in Merchant Access.
Can funds held for backup withholding be refunded?
The IRS does not refund withheld funds. Funds held due to federal and/or state backup withholding will appear on your annual 1099-K form, which is sent no later than January 31st.
For more information about IRS reporting requirements, visit www.irs.gov or www.irs.gov/pub/irs-news/reg-139255-08.pdf
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